What consequences are there to “just forgiving” federal student loans?


For context, I’m really referring to central banks. What would the consequences be if the central banks just decided to forgive entities that issue student loans, like FAFSA? I’m asking on a global scale and an individual household scale.

Thank you!

In: 13

There’s a cost to giving credit and student loans are not profitable. They are given out as a favour. Many people get angry at that statement but it is true. Personally I understand the negative feelings towards student loans but i blame the fact that you have to pay for education (unlike in Europe where it’s free or like 1000 dollars per year). If student loans are to be forgiven then banks won’t issue more student loans ever again. They were already loosing money to finance students so now there is definitely no motive to do anything. It will help students but it will prohibit future students from accessing opportunities. Not to mention that students have to pay tax on any amount of the loan forgiven.

The government can only forgive the loans it owns, unless it wants to spend money buying the loans it seeks to forgive. They do own quite a few though, so they can do that, but that means a dip in federal revenue since that debt was supposed to be an income stream for them. We already spend at a deficit, so either we take on more debt that before, or we increase taxes to compensate. Ultimately, every dollar forgiven will be paid by someone, so should we all pay it, or just those who took the loans? I chose not to take loans, but I’d likely have to help pay those loans anyway if debts are forgiven.

this will be a transfer from taxpayers to college graduates.

probably from future taxpayers, since repayment of loans mostly be in the future.

and there are plenty of groups that seem more deserving of government transfers, like the poor (adults and children), minorities, uneducated, old, sick, disabled,


Immediately, it’s an additional expense to some government ledger somewhere. A few years ago the amount would have been huge, now it’s probably not a huge amount relatively speaking. This applies only to those loans owned by the government, which is most, but not all.

In the long term, it does nothing to reform the cost or spending structure of US universities so we’ll be in the same spot against in not nearly as many years. Only worse, because many will assume they’ll do the same again later.

A more reasonable alternative is to forgive some or all student loan interest. More extreme steps might be to start taxing endowments of universities to cover the costs or reform student lending to make universities have some liability for the loans (which would drastically adjust their offerings and advice to students).

People would be PISSED. Best anyone should shoot for to make everyone happy would be to get rid of the existing interest rates of the existing loans and make new loans have the same interest rates as mortgages.

We have an economy that’s based on collateralized debt. There’s nothing else propping up capitalism if we free the indentured servants and this would make a lot of people who profit off of indentured servitude very mad.

It wouldn’t have much effect on the Central Banks. Other banks would be able to write it off in their ledgers. It would be a benefit to put that money into the system instead of into the banks.

There’s an opportunity to rebalance the economy. Part of the reason medical costs are so high in the States is because college fees are so high. Managed properly student loan forgiveness can bring down the cost of services that everyone uses like hospitals and schools. And you’ll be better able to narrow the wealth disparity long term.

How high do I rate the chance of this happening in the States? I give it a non-zero probability.


Central bank do not own those loans so it doesn’t affect it. If they were to buy those loans and forgive it would be no different than quantitative easing.

We do not do so because of the culturally ingrained idea that debt has to be repaid, the perpetual discontent among future college indebted students who will not benefit from this and the cultural/political refusal to publicly fund affordable college, european style.

Are you, personally, prepared to pay the cost of writing off those loans? No? Why should anyone else?

It would set a precedent that government can simply arbitrarily give money to whatever group they want to. They do this already, but it would ne more blatant than usual.

It does nothinng to discourage colleges from continuing to charge inflated tuition rates, admit students who really shouldn’t be there, keep them there instead of flunking them out, and inventing degree programs of questionable value.

If they are selling degrees that are truly producing an income that is too low to repay the loans needed to buy them, the money for those loans should come from the people who sold the overpriced degrees.